InvestorPresentation · 2021. 6. 21. · Right Meow (10,500’ laterals)-8 Bone Springwells - Avg....

NYSE: DVNdevonenergy.com

Investor PresentationJune 2021

2| Investor Presentation

A Leading U.S. Energy Company

ENTERPRISE VALUE: $26 billion (June ‘21)

OIL-WEIGHTED: 76% of revenue (Q1 ‘21)

LOW LEVERAGE: ~1.0x by YE 2021

DEVON ENERGY OVERVIEW

(1) Expected leverage ratio by year-end 2021 assuming $60 WTI pricing.

PREMIER MULTI-BASIN PORTFOLIO

DISCIPLINED RETURNS-DRIVEN STRATEGY

SIGNIFICANT FINANCIAL STRENGTH & LIQUIDITY

PRIORITIZING CASH RETURNS TO SHAREHOLDERS

COMMITTED TO ESG EXCELLENCE

(1)


Our Cash-Return Business Model

DISCIPLINEDGROWTH STRATEGY

MODERATING OIL GROWTH targets: up to 5% annually

Growing margins through operational & corporate cost reductions

REDUCEDREINVESTMENT RATES

Returns-driven strategy prioritizes FREE CASH FLOW generation

Committed to maintenance capital program in 2021

MAINTAINLOW LEVERAGE

Targeted net debt-to-EBITDAX ratio: 1.0x or less

Strong liquidity & disciplined hedging enhance FINANCIAL STRENGTH

PRIORITIZECASH RETURNS

Deploying free cash flow to dividends & debt reduction

Innovative FIXED-PLUS-VARIABLE dividend strategy

PURSUEESG EXCELLENCE

Performance critical to long-term success of the company

ESG initiatives incorporated into COMPENSATION structure

“Our CASH-RETURN business model is designed to moderate growth, emphasize capital efficiencies, maximize returns and prioritize the return of increasing amounts of cash to shareholders. These principles have positioned Devon to be a PROMINENT

and CONSISTENT builder of economic value through the cycle.”

− Rick Muncrief, President & CEO

COMMITMENTRUNS DEEP


Executing on Our Disciplined Strategy

Key Uses of Cash in Q1

Debt ReductionCapital Expenditures

Dividend Payments

ALLOCATED TODIVIDENDS &

DEBT REDUCTION

>65%$1.44 Billion

$0.50B

$0.74B

$0.20B

(1)

(1)

Paid industry-first fixed-plus-variable dividend in March

Strengthened balance sheet with $743 MM debt reduction

Limited cash flow reinvestment rate to 64% in Q1

Expanded field-level per-unit margins by 88% (vs. Q1 2020)

Lowered overhead costs by 30% year over year

(1)

(2)

(3) Field-level margins represent oil, gas and NGL sales less production expenses divided by total production. (4) Represents G&A expense compared on a pro forma basis.

(3)

(1) Includes $210 mm of debt that was redeemed on April 10, 2021. (2) Represents operating cash flow (excluding cash restructuring charges of $167 mm) divided by capital expenditures.

(4)

RETURNING VALUE TO SHAREHOLDERSFIRST-QUARTER 2021 HIGHLIGHTS


On Track to Achieve 2021 Capital Objectives

POWDER RIVERBASIN

ANADARKOBASIN

EAGLEFORD

WILLISTONBASIN

Committed to a maintenance capital program in 2021Oil production (MBOD)

Q2 2021e 2H 2021e FY 2021e

280 – 290>290FY 2020

284 MBOD

283 – 293

Note: 2020 production is pro forma and represents the combined results for legacy Devon and WPX.

DELAWAREBASIN

2021e CAPITAL BUDGET

$1.6-$1.8 Billion(80% ALLOCATED TO DELAWARE)

PRIORITIZING free cash flow generation over volume growth

Activity focused on LOW-RISK development in the Delaware

Supply chain benefiting from enhanced OPERATING SCALE


Delaware Basin – Our Capital-Efficient Growth Engine

New Mexico

Texas

Loving

WardReeves

Winkler

Eddy Lea

DELIVERING TOP-TIER RESULTS Development focus accelerates efficiencies Oil production increases 19% year over year Danger Noodle project headlines Q1 results

RECEIVING FEDERAL DRILLING PERMITS Dept. of Interior 60-day order lapsed in March >50 drilling permits approved since order lapsed Federal permit inventory: 4 years (~500 permits)

WORLD-CLASS OIL OPPORTUNITY Stacked pay position across 400,000 net acres Diversified acreage: 65% non-federal land Multi-decade inventory opportunity Danger Noodle (10,000’ laterals)

- 4 Wolfcamp wells - Avg. IP30: 5,100 BOED/well

PROLIFIC UPPERWOLFCAMP DEVELOPMENT

Thoroughbred (7,100’ laterals)- 2 of 11 Wolfcamp wells(2)

- Avg. IP30: 4,200 BOED/well

STRONG INITIAL RESULTSFROM UPPER WOLFCAMP

TOP Q1 2021 PROJECTSAVG. IP30: 3,400 BOED (~70% OIL)

Right Meow (10,500’ laterals)- 8 Bone Spring wells- Avg. IP30: 2,400 BOED/well

HIGH-RETURNBONE SPRING DEVELOPMENT

(1) As of May 4, 2021. (2) Due to timing, only 2 wells attained 30-day peak rates in Q1.

- 2 frac crews running- Positive impact to Q2 volumes

STATELINE AREAUPCOMING ACTIVITY

(1)


Operations Scaled to Generate Free Cash Flow

$50 WTI $60 WTI $70 WTI

9%FREE CASH FLOW

YIELD

12%FREE CASH FLOW

YIELD

15%FREE CASH FLOW

YIELD

FUTURE UPSIDE

2021 OUTLOOK Based on mid-point guidance Burdened by restructuring costs

25%

Note: Free cash flow yield represents operating cash flow, excluding changes in working capital, less total capital divided by market capitalization. Assumes Devon’s market capitalization as of April 30, 2021. Also assumes $2.75 Henry Hub & NGL realizations at 40% of WTI.(1) Represents a maintenance capital scenario assuming current service cost environment.

20%

15%

OIL PRODUCTION: 280-290 MBOD

UPSTREAM CAPITAL: $1.6-$1.8 B

COMMITTED TOMAINTENANCE CAPITAL Excludes commodity hedges

100% upfront cost synergies

(1)

(FY 2021 OUTLOOK)


Free Cash Flow Priorities

STEP 1: VARIABLE DIVIDEND CALCULATIONAdjusted Cash Flow (Non-GAAP)

− Capital Expenditures (Accrued)

Adjusted Free Cash Flow

− Fixed Quarterly Dividend

Excess Free Cash Flow× Up to 50% Payout (Board Discretion)

Variable Dividend

STEP 2: PAID QUARTERLY IF BELOW CRITERIA METCash Balance: >$500 millionStrong Balance Sheet & Leverage RatiosConstructive Commodity Price Outlook

FIXED DIVIDEND Paid quarterly at $0.11 per share Target payout: up to 10% of operating cash flow

VARIABLE DIVIDEND Calculated on a quarterly basis Up to 50% of excess free cash flow

DEBT REDUCTION PROGRAM $1.5 billion reduction program underway Net debt-to-EBITDAX target: 1.0x or less

SHARE REPURCHASES Potential for opportunistic share repurchases

VARIABLE DIVIDEND STRATEGYCALCULATED ON A QUARTERLY BASIS

Note: Adjusted cash flow represents operating cash flow before balance sheet changes.


2017 2018 2019 2020 2021e

Accelerating Cash Returns to Shareholders

A history of returning cash to shareholders(Dividends per share)

$0.24

FIXED + VARIABLE DIVIDEND

$0.30$0.35

$0.68

(BASED ON Q1 FINANCIAL RESULTS)

FOR Q1 VARIABLE DIVIDEND CALCULATION (SEE PG. 16 FOR DETAILS)

CONSECUTIVEYEARS28

OF DIVIDEND PAYMENTS

FIXED

VARIABLE(>10% CAGR SINCE 1993)

FIXED DIVIDEND $0.11 PER SHARE

VARIABLE DIVIDEND $0.23 PER SHARE

TOTAL PAYOUT $0.34 PER SHARE

RECORD DATE: JUNE 14, 2021 PAYABLE DATE: JUNE 30, 2021

FIXED

SPECIAL

($0.42/share)($0.44/share)

($0.26/share)


An Advantaged Dividend with Sustainable Growth

COP EOG FANG OVV S&P 500 XEC PXD APA MRO Nasdaq CLR

1.5%

(1) Assumes $60 WTI and 50% of excess cash flow (adjusted free cash flow less fixed dividends) is paid through a variable dividend. All dividends require board approval.

0.6%

1.7%2.2%

Note: Assumes Devon’s market capitalization as of April 30, 2021. Peer data sourced from FactSet as of April 30, 2021.

0.5%

Differentiated yield opportunity vs. peers & broader market2021e dividend yield based on midpoint guidance

0.6%

1.5%1.5%2.0%

3.4%

Significant CASH FLOW UPSIDE with higher commodity prices

Merger cost synergies to substantially EXPAND MARGINS

INVENTORY DEPTH provides long-term growth optionality

DEVON POSITIONED FORSUSTAINABLE GROWTH

0.0%

FIXED

>7%(1)

VARIABLE


2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

$485$242

$463$325$472

Liquidity

$585

Improving Our Investment-Grade Financial Position

Credit Facility

Substantial debt reduction completed year to dateOutstanding debt maturities through 2030 ($MM)

Reduced outstanding debt by $1,243 million year to date

Net debt to EBITDAX on track to reach 1.0x by year end

~60% of outstanding debt matures after 2030

>2 YEARS UNTIL INITIAL

MATURITY

(3/31/21)

$4,900

Cash$1,900

$3,000

DEBT REDUCTIONPROGRAM UNDERWAY

$1.5B

DEBT REDUCTION IN 2021

Note: 2027 notes are callable in Q3 2022.


$200 MILLION

Raising Annual Cost Savings Target to $600 Million

GENERAL & ADMINISTRATIVE

D&C EFFICIENCIES

$75 MILLION

OPERATING MARGINIMPROVEMENTS $200 MILLION

FINANCINGCOSTS

>50%

Cost synergies to exceed original savings targetTargeted annual cost savings by area ($MM)

(1) Includes benefits of cost savings captured in the second half of 2020 from legacy Devon operations. (2) Represents interest savings from the $743 mm of debt redeemed year-to-date and $500 mm of notes callable in Q2 2021.

(2)

(1)

(1)

70%

60%

70%

$2.5BILLION(OVER NEXT 5 YEARS)

~15% OF MARKET CAP REFLECTED IN2021 OUTLOOK

EXPECTED RUN-RATEBY YEAR-END 2021

PV-10 COST SAVINGS

$125 MILLION( $25 MM VS. PRIOR TARGET)+


Committed to Aggressive Emissions Reductions

“We know that STRONG ENVIRONMENTAL

PERFORMANCE IS ESSENTIAL to protecting

the communities in which we live and

operate, managing risk, and generating

long-term value for stakeholders. DEVON

IS SETTING AGGRESSIVE GOALS to lower its

carbon impact, while continuing to

return value to shareholders. We know

the need for oil and gas will remain for

decades, but as good stewards, it is

INCUMBENT ON US TO IMPROVE how we

produce and deliver it.”

– Rick Muncrief, President & CEO

ENVIRONMENTAL PERFORMANCE TARGETS

50GHG EMISSIONS INTENSITYSCOPE 1 & 2

%REDUCTION BY 2030

65METHANE EMISSIONS INTENSITY

%REDUCTION BY 2030

VALUE CHAIN ENGAGEMENT

ANNUALASSESSMENTOF DEVONCONTRACTORSIN KEY ESGPERFORMANCEAREAS BY 2023

ESG90NON-FRESHWATER USAGE

%ORMORE

FOR COMPLETIONS INMOST ACTIVE DELAWAREBASIN OPERATING AREAS

GHG EMISSIONS FORSCOPE 1 & 2 BY 2050

OF GROSS NATURAL GASPRODUCED BY 2025

0FLARING INTENSITY

.5ROUTINE FLARING

COMPLETELY BY 2030

%ORLOWER

GHG EMISSIONSSCOPE 1 & 2

NET ZERO

ELIMINATE


Why Own the Go-Forward Devon?

PREMIER MULTI-BASIN PORTFOLIO

DISCIPLINED RETURNS-DRIVEN STRATEGY

SIGNIFICANT FINANCIAL STRENGTH & LIQUIDITY

PRIORITIZING CASH RETURNS TO SHAREHOLDERS

COMMITTED TO ESG EXCELLENCE

NYSE: DVNdevonenergy.com

Asset OverviewAppendix


Q1 2021 – Variable Dividend Calculation

VARIABLE DIVIDEND CALCULATION

$886 MM – Adjusted Cash Flow (Non-GAAP)

− $487 MM – Capital Expenditures (Accrued)

$399 MM – Adjusted Free Cash Flow (Non-GAAP)

− $76 MM – Fixed Quarterly Dividend ($0.11/share)

$323 MM – Excess Free Cash Flow× 48% Payout (Board Discretion: Up to 50%)

$155 MM – Variable Dividend ($0.23/share)

VARIABLE DIVIDEND DISTRIBUTION DETAILS

PAYABLE on June 30, 2021

SHAREHOLDERS of record on June 14, 2021

Note: Adjusted cash flow represents operating cash flow ($592 mm) before balance sheet changes (-$127 mm) excluding cash restructuring charges (-$167 mm). See Devon’s first-quarter 2021 earnings materials for more details regarding the variable dividend calculation.

SECOND CONSECUTIVE VARIABLE DIVIDEND DECLARED


Delaware Basin – Operating Efficiencies Advance

DEVELOPMENT FOCUSACCELERATES EFFICIENCIES

Achieving capital efficiencies…Development D&C costs per foot (excludes facilities)

2018 2019 2020 Q1 2021

$940

$846

$614

$53443%

IMPROVEMENT

Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021

$32.07

$17.72

81%IMPROVEMENT

Delivering margin expansionField-level operating margin ($/BOE)

Reducing field level costs…LOE & GP&T per Boe (pro forma)

Q1 2020 Q1 2021

11%YEAR OVER YEARↆ

$6.80

$7.61


Anadarko Basin – Dow Drilling JV Commenced

Commenced Dow JV drilling program in Q1 2021

$100 MILLION drilling carry on 133 undrilled locations

JV operating costs benefit from midstream incentive rates

Margins EXPANDING from exposure to rising NGL prices

Blaine

Canadian

Kingfisher

Caddo

SIGNIFICANT ACREAGEPOSITION

300K ACRESNET

Cash flows benefit from liquids-rich production mixAnadarko production mix & Mt. Belvieu price ($/barrel)

Q2 2020 Q3 2020 Q4 2020 Q1 2021

2XIMPROVEMENT

$12.57

$16.69

$20.01

2021 Program Overview 2 operated rigs running Expect to spud 25-30 wells IRR competitive with Delaware

DOW DRILLING JVFOCUS AREA

GAS

>$25.81

OIL

>30% NGL

TOP-TIER LIQUIDS-RICH RESOURCE PLAY


Investor Contacts & Notices

Forward-Looking StatementsThis communication includes “forward-looking statements” within the meaning of the federal securities laws. Such statements include those concerning strategic plans, our expectations and objectives for future operations, as well as other future events or conditions, and are often identified by use of the words and phrases “expects,” “believes,” “will,” “would,” “could,” “continue,” “may,” “aims,” “likely to be,” “intends,” “forecasts,” “projections,” “estimates,” “plans,” “expectations,” “targets,” “opportunities,” “potential,” “anticipates,” “outlook” and other similar terminology. All statements, other than statements of historical facts, included in this communication that address activities, events or developments that Devon expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control. Consequently, actual future results could differ materially and adversely from our expectations due to a number of factors, including, but not limited to: the volatility of oil, gas and NGL prices; risks relating to the COVID-19 pandemic or other future pandemics; uncertainties inherent in estimating oil, gas and NGL reserves; the extent to which we are successful in acquiring and discovering additional reserves; the uncertainties, costs and risks involved in our operations, including as a result of employee misconduct; regulatory

Investor Notices

restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters; risks related to regulatory, social and market efforts to address climate change; risks related to our hedging activities; counterparty credit risks; risks relating to our indebtedness; cyberattack risks; our limited control over third parties who operate some of our oil and gas properties; midstream capacity constraints and potential interruptions in production; the extent to which insurance covers any losses we may experience; competition for assets, materials, people and capital; risks related to investors attempting to effect change; our ability to successfully complete mergers, acquisitions and divestitures; risks related to the recent merger with WPX, including the risk that we may not realize the anticipated benefits of the merger or successfully integrate the two legacy businesses; and any of the other risks and uncertainties discussed in Devon’s 2020 Annual Report on Form 10-K (the “2020 Form 10-K”) or other SEC filings.

The forward-looking statements included in this communication speak only as of the date of this communication, represent currentreasonable management’s expectations as of the date of this communication and are subject to the risks and uncertainties identified above as well as those described in the 2020 Form 10-K and in other documents we file from time to time with the SEC. We cannot guarantee the accuracy of our forward-looking statements, and readers are urged to carefully review and consider the various disclosures made in the 2020 Form 10-K and in other documents we file from time to time with the SEC. All subsequent written and oral forward-looking statements attributable to Devon, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. We do not undertake, and expressly disclaim, any duty to update or revise our forward-looking statements based on new information, future events or otherwise.

Use of Non-GAAP InformationThis presentation may include non-GAAP (generally accepted accounting principles) financial measures. Such non-GAAP measures are not alternatives to GAAP measures, and you should not consider these non-GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. For additional disclosure regarding such non-GAAP measures, including reconciliations to their most directly comparable GAAP measure, please refer to Devon’s first-quarter 2021 earnings materials and related Form 10-Q filed with the SEC.

Investor Relations Contacts

Scott Coody Chris CarrVP, Investor Relations Manager, Investor Relations405-552-4735 405-228-2496

Email: [email protected]

mailto:[email protected]

InvestorPresentation · 2021. 6. 21. · Right Meow (10,500’ laterals)-8 Bone Springwells - Avg....

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Transcript of InvestorPresentation · 2021. 6. 21. · Right Meow (10,500’ laterals)-8 Bone Springwells - Avg....